One of the financial measures the Trump administration has closely watched as a gauge of affordability is moving in the wrong direction.
The benchmark 10-year Treasury yield climbed to about 4.7% this week, its highest level since President Donald Trump returned to office. The move has broad implications because the yield helps determine borrowing costs on everything from home mortgages and auto loans to corporate debt.
Treasury Secretary Scott Bessent has repeatedly pointed to the 10-year Treasury yield as a key indicator of whether the administration is succeeding in bringing down financing costs.
"Lower Treasury borrowing costs mean lower corporate borrowing costs, lower mortgage rates and lower car payments — which all translates to greater affordability for all Americans," Bessent said in a speech in November.
Borrowing costs have risen since the conflict with Iran began in late February. The 10-year Treasury yield has climbed roughly eight-tenths of a percentage point from its low point of Trump's second term, reached just before the United States and Israel launched military strikes against Iran.
The higher yield is already filtering through the economy. Freddie Mac said the average rate on a 30-year fixed mortgage reached 6.58% this week after dipping below 6% before the Middle East conflict intensified. Higher mortgage rates have added another obstacle for a housing market that had been expected to rebound this year.
"This latest leg up in rates is going to push sales down unless it's quickly reversed," Nancy Vanden Houten, lead U.S. economist at Oxford Economics, told The New York Times. "And it comes at a time when households are confronting other increased costs for energy and food due to the effects of the war."
Analysts say several factors are driving Treasury yields higher. Rising oil prices have revived inflation concerns, while heavy investment in artificial intelligence infrastructure has fueled expectations of stronger economic growth, increasing the possibility that interest rates may have to remain elevated to prevent the economy from overheating.
At the same time, investors are demanding higher returns as governments around the world increase borrowing. The federal government now carries nearly $40 trillion in outstanding debt, more than twice the amount it owed a decade ago, while several other major economies are also expanding fiscal spending.
"The Iran war isn't helping, but it's not obvious that the 10-year is being driven by inflation risk," Jonathan Hill, an inflation strategist at Barclays, told The New York Times.
Subadra Rajappa, an interest-rate strategist at Société Générale, said the trend extends well beyond the United States.
"All bond yields are rising, and it is for some of the same reasons," Rajappa told The New York Times. "It is about domestic debt and deficits. It's happening globally."
Analysts also say technology companies funding massive artificial intelligence projects are competing aggressively for capital, forcing many other borrowers to offer higher interest rates to attract investors.
The move is also increasing pressure on Federal Reserve Chairman Kevin Warsh to demonstrate the central bank remains committed to keeping inflation under control. Although inflation has moderated from its peak, investors remain focused on whether the Fed will keep policy restrictive enough to prevent another sustained rise in prices. Market participants warn that if inflation expectations become entrenched, long-term Treasury yields could climb even higher.
"The reality is we are coming up on five and a half years of above-target inflation," Hill told The New York Times. "And the market is already saying we should anticipate the likelihood of that for additional years, not just months, to come."